It’s pretty normal for individuals to come and speak to us about questions they might have about paying taxes if they get an inheritance in Florida. Any time you receive money or property, it is always a smart thing to do to understand the possible tax consequences. You may set yourself up for some severe legal headaches down the line, even though you unintentionally make a mistake and fail to pay taxes, or don’t know that taxes are applied throughout your unique circumstance.
But when people in Florida get an inheritance, they should still talk to a tax or estate planning professional as soon as possible. Until then, you should know some general rules about obtaining inheritances in Florida.
What is Inheritance Tax?
Death taxes, including estate and inheritance taxes, are taxes levied on the assets of a recently deceased person by a governing body. The terms “estate tax” and “inheritance tax” are sometimes used interchangeably and are equal, although there is a slight difference between the two.
Whereas the estate itself owes an estate tax, inheritance taxes are levied against the individual parts received by heirs. Estate taxes are charged by the estate’s executor or Florida personal representative, often using assets in the estate in Florida or elsewhere. Inheritance taxes are owed by individual heirs and it is common in Florida for a decedent’s will to provide for payment of any inheritance taxes for assets distributed from the estate.
Inheritance Tax in Florida
The State of Florida Constitution safeguards residents and other heirs from state taxes on the properties of the deceased. In other words, your heirs would not pay Florida state taxes if your primary residence is in Florida, even if they live in another state. Federal estate taxes can also, of course, extend to any inheritance. Cash, IRA’s, CD’s, stock, life insurance policies, property, brokerage accounts, businesses, and other assets are included in certain estates.
Florida does not levy an inheritance tax on your inheritance, but six states tax your inheritance. State taxes on inheritance from estates in those states will be collected by Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. So, residents of Florida who inherit property from other states may have to pay those states an inheritance tax.
Federal Estate Tax
The State of Florida does not have a death tax, as stated above but eligible Florida estates are still responsible for the federal estate tax (there is no federal inheritance tax).
An estate is taxed at a marginal rate of up to 40 percent to the degree that its assets surpass the $12.92 million exemption (as of 2023) . This suggests that any overage is subject to tax on an estate priced at $12.92 million, which is applied in increasingly growing brackets like the federal income tax.
Because transfers to spouses are excluded, by using estate-planning techniques such as pass-through trusts for spouses, married couples can essentially double the exemption to $25.84 million.
Taxable Estates calculations
You simply deduct liabilities from assets to measure the taxable value of an estate, with ‘assets’ widely specified to include considerably more than what goes through probate.
Real estate, bank accounts, corporate interests, assets held in a decedent-controlled trust, and insurance policy death benefits are all included within a taxable estate.
However, if a life insurance policy is kept for at least three years before dying in an Irrevocable Life Insurance Trust (ILIT), the benefits may be maintained beyond the estate.
Gifting and Trusts
To a degree, estate tax liability may be mitigated by removing assets before death from the potential estate. This can be done through certain types of irrevocable trusts, or more simply, through the transfer of assets during life to heirs or charities.
In general, selling off assets is not an efficient method for minimizing property tax liability, as the value is merely shifted from one form to another.
Consult with an Attorney in Florida
In Florida, tax-friendly laws help protect assets, but even “friendly tax laws” require a specialist to interpret them. An attorney can provide ways for potential tax liabilities to be reduced. Some clients distribute assets throughout their lives in the form of gifts. A particular form of trust can be formed by others. The monetary limits on annual gifting are known by a lawyer specialized in this field of law.
The laws are very unique to each state. Getting advice at the Private Corporate Counsel Firm from a professional estate planning attorney helps protect you, your family, and your Florida estate tax assets.